Why I’m Not Going Near Spotify (and Why You Shouldn’t Either)

Unless you’ve been living somewhere without net access for the past week or so, you have heard about Spotify, an online music service that just launched in the U.S. The initial reviews have been pretty positive, and it has generated a lot of buzz, although it’s quite similar to some services that have been available here for some time (Rhapsody comes to mind). But there’s something pretty insidious buried inside music rental models like this. It’s prime territory for a bait-and-switch strategy. In fact, this approach could be exactly what the music labels are relying on.

At first blush, paying a monthly amount to “borrow” content like this over the net seems like a pretty good idea. Many of us have used Netflix or Hulu and become accustomed to the idea of paying our monthly subscription fee and getting to watch as much as we want. Both of these companies have done a fantastic job with their offerings. Netflix has become so popular that it recently surpassed the amount of Bittorrent (“pirate”) traffic on the web, proving that it’s compelling offerings, not lawsuits, that win customer’s hearts and minds. But if Hulu and Netflix are so fantastic, what’s the concern about Spotify?

Simply put: the way we consume music is fundamentally different to the way we consume movies and TV.

Think about it. It is relatively rare to own a movie or TV series that you sit through and watch multiple times. Sure, there are some classics where that’s the case, but most people watch a video once and that’s it. Music is not like this. The same songs get listened to time and time again. We build playlists (custom CDs or even mix tapes, if you’re old enough) around them. It’s the very reason most people don’t just listen to the radio. They want to own their favorite songs and albums so they can play them when they want. Understanding this — that we consume audio in a fundamentally different way from video — is critical to understanding why, from a consumer point of view, paying a monthly rental fee is a risky way of obtaining music.

Let me illustrate why.

Again, unless you’ve been living somewhere without internet for the past week or so, you would have seen the outrage when Netflix upped its prices. Well, if you think this is bad, just wait until Spotify does it. With Netflix, if the price gets out of step with what the company delivers you every month, it’s a pretty simple decision to stop subscribing. You were paying your $10 per month to watch your movies or TV shows, you watched your shows, and now they’re charging too much. So you stop subscribing. You don’t lose anything, because you don’t really want to re-watch all those old shows and movies that you’ve already seen. All you need to do is find somewhere else to watch next week’s episode, or next month’s movie.

But if Spotify were to do this and you choose to stop subscribing, all that music you have on your Android or iPad is gone. You can’t get the music out, and there’s nothing to suggest that you’ll be able to get the playlists on your computer out as easily as Spotify does from iTunes.

This makes it the ultimate breeding ground for a bait-and-switch strategy: once you’re invested, your willingness to pay goes up dramatically. Most of us would probably be willing to pay quite a lot to not lose all our music. That becomes all the more alarming when the initial indications suggest that Spotify is a tricky balancing act to make profitable. Three big variables affect its profitability: the percentage of paying users, the amount they pay each month, and — here’s the real gotcha — the cost of track licensing.

“It’s really frustrating, and it seems to be happening a lot. Spotify has changed how I buy and listen to music, and I pay for Premium so that I don’t have to download albums from iTunes, but now I’m having to do both.”

If you’re interested in seeing what the buzz is about, you should try it out. But beware. Spotify may try to resist price increases. But, given what we know about the record industry and how it approaches licensing negotiations, I wouldn’t let my music get held hostage to a monthly ransom.